Is urban sprawl to blame for cities going bankrupt?

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Stockton was the first and largest California city to go bankrupt in 2012, followed by Mammoth Lakes, and San Bernardino, which filed for municipal bankruptcy protection in July. Word is the small city of Atwater in Central California might be next.

In each case, it seemed that large public pension obligations were to blame, but in a recent Los Angeles Times op-ed, former Ventura mayor William Fulton argues that, “…the pension blame game masks another, deeper problem for the state’s taxpayers: the hidden but crushing costs of sprawl.”

Fulton acknowledges that pensions are a big part of the financial challenges cities are facing, but he says that if cities grow smartly by building roads and buildings close together instead of spread out, it will be more affordable for those cities to provide services and offer them a way out of this financial box.

“I don’t want to underestimate the importance of the pension issue, as a former mayor I understand that is a huge issue and pension reform is necessary,” said Fulton on AirTalk. “But if you have sprawling suburban development patterns with large lots and long distances from jobs, the public investment to make those subdivisions built in the first place is much higher, the cost of providing police and fire and every other service to those areas is bigger, and therefore its very difficult for cities to regain all of the cost that they have with the tax revenues.”

Fulton also stresses how Proposition 13 makes this a bigger issue in California. He says that the increased property taxes that you find in larger homes does not necessarily compensate for the difference in costs between more condensed areas and urban sprawl.

“Under Proposition 13, unless the house is sold, if it goes up in value it can't be reassessed and the fact that you have low taxes if you don’t move encourages more people to stay put,” said Fulton. “Houses don’t turn over as much as they might otherwise, so overtime the cost of services goes up and the revenue associated with that property goes down.”

On the opposing side of this argument is Wendell Cox, principal, Demographia, and former member of the L.A. County Transportation Commission, who currently resides in Bellville, Illinois. He says it’s the public pensions that are really to blame for certain California cities’ money trouble, not the issue of “smart growth.”

“I could not disagree more, [Fulton] is basically suggesting that the dreaded demon sprawl is to blame for the bankruptcy of those cities... when in fact if we look at California we have a 500 billion pension liability at the moment,” said Cox. “We have a situation where public employee compensation per employee has gone up at three times the rate of the private sector in the last 11 years. If you want to know why California cities are in trouble it’s because they have not controlled their personnel cost.”

Cox disagrees that “smart growth,” is the way to go for cities. He says smart growth increases home prices because of the affect it has on land markets. This has a ripple effect through the economy, increasing cost of living, poverty rates, and the fact that higher densities are associated with traffic congestion and pollution.

“Overall urban densities in California are the highest of any state in the nation. That should mean that things should be better in California all things being equal, but it’s not,” said Cox. “You go to Texas where the densities are half as much and they hardly even think of smart growth … because they did not have the housing bubble. Most of the United States didn’t have a housing bubble at all, and one of the reasons is because they didn’t have smart growth and growth controls you have in California.”

However, Fulton is not convinced. He states that similar to California, Texas over history has additionally had one of the highest rates for municipal bankruptcy. He also says that he agrees with Cox that restrictive land use regulation drives up housing price.

However, he says that, “One of the reasons that has happened in California and that sprawl has become a fiscal drain in cities is that land use regulation is used by local government to suppress densities,” said Fulton. “...The market should be allowed to operate better and it is quite clear to me from looking at market trends that if the market were allowed to work in California as it should then we would see higher densities. We would see more concentration of development, and more compact communities.”

Though Cox may agree that the market needs less regulation, he still does not think that more dense urban communities will solve any problems, nor is urban sprawl the true issue at hand in the California fiscal crisis.

He notes that, “If you look at the cost of compact developments versus sprawl developments they found a $75 per household cost annually. $75 per household is not going to throw Stockton into bankruptcy.”

Weigh In:

Is that the case? Could “smart growth” development save our cities from financial collapse? Is it realistic in both urban and green-field areas? Or might so-called “smart growth” actually contribute to the financial demise of California cities?

Guests:

William Fulton, vice president and director, Policy Development & Implementation Smart Growth America; senior fellow at the Price School of Public Policy at USC; former mayor of Ventura, California

Wendell Cox, principal, Demographia, a consulting firm in demographics and public policy based in Bellville, Illinois; former member of the LA County Transportation Commission